Another California Pension Fund Short Of Target After Coronavirus Impact
Jul. 20--California's pension fund for teachers missed its investment target for the last fiscal year, reflecting a global market downturn brought on by the coronavirus outbreak.
The California State Teachers' Retirement System on Monday reported a 3.9% return on investments in the fiscal year that ended June 30, falling short of its 7% goal. The state's largest pension fund for public employees, CalPERS, similarly came up short with 4.7% returns this year.
Both funds' performance generally reflects that of the stock market, which this year saw its worst first quarter ever recorded, CalSTRS noted in a release. That downturn was followed by the quickest rebound in stock market history, putting California's pension funds in better shape than they could have been.
"We have never seen the level of volatility the U.S. and global financial markets exhibited over the short period from late February to May, " said Chief Investment Officer Christopher J. Ailman. "CalSTRS adapted quickly and rose to the occasion during a year when the entire world has been called upon to go above and beyond."
Steve Maviglio, a spokesman for the union-backed organization Californians for Retirement Security, said the 3.9% return was evidence that CalSTRS "has made smart investments to weather this storm."
The fund has historically met or exceeded its goals, he said, and this year's results should reassure the nearly 1 million Californians who rely on CalSTRS for retirement security.
This is the second consecutive year that CalSTRS missed its target, although last year's performance -- a 6.8% return -- just barely fell short of the fund's goal. Officials at the time cited market volatility as the driving force.
CalSTRS is the nation's largest teacher pension fund, valued at $246.0 billion. It's about 64% funded, meaning that the state has 64% of the money it needs to fulfill all current and future obligations.
CalSTRS since 2014 has been asking teachers and schools to pay more toward retirement plans in an effort to bring the system to full funding.
Teacher contribution rates have grown from 8.15% in 2014 -- about the same rate as in 1972 -- to just over 10% last year. In 2013, school districts paid 8.25% of salaries toward teachers' pensions. Payments were scheduled to increase to around 19% in the upcoming year.
As the coronavirus outbreak introduced new costs and uncertainty about the future of education funding, five superintendents of major school districts in April asked the state to freeze their contributions at 2019 levels. CalSTRS said at the time that delayed contributions could threaten efforts to improve the system's financial health.
The state budget Gov. Gavin Newsom signed last month provided funding to give schools contribution rate relief for two fiscal years. The state's contribution rate will remain at 2019 levels, while member rates -- which have stayed constant since 2018 -- will not be affected.
"This crisis is unique in many ways, but for CalSTRS, this is the first time we have gone into a recession with a plan for full funding in place," said Chief Executive Officer Jack Ehnes. "We are ready and able to guide the fund through times of uncertainty."
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